Wednesday, November 21, 2012

US Market Sentiment Mixed and Undecided

The US equities market closed mix amid headwinds from Europe and continuing concerns on the so-called fiscal cliff.

Federal Reserve Chairman Ben Bernanke has stated that at present, the labor markets is still far from healthy and the central bank lacks tools to mitigate the full effects of the fiscal cliff.

The Dow Jones Industrial Average index shed 7.45 points to 12,788.51 while the S&P500 crept up 0.93 of a point to 1,387.81.

According to Fed Chairman Ben Bernanke, though the unemployment rate is gradually slowing, the jobs market remains far from healthy and is well above the long-run sustainable level.

This signaled that the central bank would still proceed with its bond-buying programs. Bernanke said that it was still too soon to tell how effective QE3 was. However, it was observed that yields on corporate bonds and mortgage-backed securities had “fallen significantly” since the stimulus measures were announced.

He did not have any comment as to how the Fed would take action after Operation Twist expires in December.

Last October, home building in the US climbed to its highest rate in more than four years. Housing starts rose by 3.6% month-on-month, much higher than market estimates of a 3.7% decline, to a seasonally adjusted annual rate of 894,000 which far exceeds market estimates of 840,000.

This was the highest reading since July 2008. Year-on-year, new-home construction increased 41.9%. Meanwhile, single-family home construction, which makes up two-thirds of housing starts, lost 0.2% to a rate of 594,000 units. The number of new building permits likewise declined 2.7% month-on-month to an annualized level of 866,000.

US Treasury prices continued to drop as Fed Chairman Ben Bernanke refused to disclose whether or not the central bank would buy more longer-dated bonds next year.

The two-year note yield gained 1.2 basis points to 0.254% and the 10-year bond yield jumped 5.2 basis points to 1.665%.